VRS Payout Tax-Free? 1 ITR Mistake Cost Him Years

An employee received ₹65.21 lakh as VRS compensation after his company shut down. He filed it wrongly in his ITR, triggering a tax demand. ITAT Pune ruled the amount is not taxable and gave him full relief — but only after a long legal fight.

Here's what happened: An employee received ₹65.21 lakh as VRS compensation when his company closed its plant — a common payout in Indian manufacturing closures.. He incorrectly reported this amount under a taxable income head in his ITR, which triggered a tax demand from the Income Tax Department.. ITAT Pune ruled the VRS payout qualifies for tax exemption under Section 10(10C) of the Income Tax Act and granted him full relief..

What you should do: Check your ITR form: VRS compensation up to ₹5 lakh is exempt under Section 10(10C) — report it under 'Exempt Income', NOT as salary or other income.. Ask your employer for Form 16 that correctly shows VRS as exempt income so your ITR matches the TDS certificate and avoids scrutiny.. If you already filed VRS income under the wrong head, file a revised ITR before the deadline or consult a CA to correct it before a demand notice arrives..

VRS exemption under Section 10(10C) applies only if you have completed 10 years of service OR are 40+ years old — confirm eligibility before claiming it in your ITR.